Pollution content tariffs, environmental rent shifting.pdf

JOWldOt INTENNAltONAL ECO1IOiWfCS EZXVIER Journal of International Economics 40 (1996) 459-476 Pollution content tariffs, environmental rent shifting, and the control of cross-border pollution Brian R. Copeland Department of Economics, University of British Columbia, Vancouver, B.C. V6T 121, Canada Received 1 November 1993; revised 1 June 1995 Abstract This paper considers the optimal unilateral policy for a country that imports a good from a neighbouring country and is harmed by pollution generated during the production of that good. If the foreign country has a variable abatement technology, then Home has an incentive to impose a tax on the pollution content of imports (a pollution content tariff). Foreign regulation of pollution does not eliminate Home’s incentives to intervene, but instead may create rent-shifting opportunities. By making the right to pollute a scarce asset, foreign pollution quotas create rents that the home government can try to extract. Key words: International trade; Environment; Transboundary pollution; Process standard JEL classification: F13; 428 1. Introduction In recent years, there has been a resurgence of interest in the interaction between international trade and cross-border pollution.’ It is well known (e.g. Siebert, 1977; Baumol and Oates, 1988) that trade liberalization need not be welfare-improving in such cases, because conventional gains from trade may be more than offset by increased pollution from a trading partner. Citizens of any one country therefore may have a legitimate interest in controlling the level of pollution generated in other countries. ‘Useful surveys of this literature may be found in Anderson and Blackhurst (1992), Beghin et al. (1994), and Dean (1992). 0022.1996/96/$15.00 0 1996 Elsevier Science B.V. All rights reserved SSDI 0022-1996(95)01415-2 460 B.R. Copeland I Journal of international Economics 40 (1996) 459-476 According to standard economic analysis, problems of cross-